Question
3 ABC Co. sells product XYZ at $5.00 per unit. If fixed costs are $200,000 and variable costs are $3.00 per unit, how many
3 ABC Co. sells product XYZ at $5.00 per unit. If fixed costs are $200,000 and variable costs are $3.00 per unit, how many units must b Unit contribution = $5.00 - $3.00 = $2.00 Fixed costs / Unit contribution= $200,000/$2.00 per unit = 100,000 units 4 Use the contribution margin ratio formula to determine the amount of sales revenue ABC must have to break even. All information Unit contribution = $5.00 - $3.00 - $2.00 Contribution margin ratio = $2.00+ $5.00 = .40 Break-even revenue = $200,000 4 = $500,000 Computing Sales Needed to Achieve Target Operating Income Unit sales = Fixed costs + Target income / Contribution margin per unit Dollar sales = Fixed costs + Target income / Contribution margin ratio
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